Dekker scores with systematizing

After getting his start in trading with short-term breakout strategies, Jason P. Dekker, CEO of Dekker Capital Management, found that the consistency of system trading brings better profits.

Dekker created his Global Diversified Futures program by applying eight years of successful discretionary trading experience and systematizing it. The Incline Village, Nev.,-based program is up 10.03% in its first full year with the 3X program up 38.09% in the same period. The programs were launched in September 2004 and are up 3.39% and 9.88% year-to-date as of August.

Dekker was a member of the National Championship runner-up University of Maine 1995 hockey team, but when an injury ended his hockey career, he knew he was going to go into trading. “Trading was a very competitive field, you eat what you kill,” Dekker says. “And being an athlete, being a competitor, I wanted to go into a competitive field where I was challenged on a daily basis,” He says discipline is a key ingredient in being a successful athlete and in being a successful trader. Further, he has a degree in Finance from the University of Lethbridge, in Alberta, Canada.

After graduating he took a trading position at Minneapolis-based brokerage NDX, where the principal let him watch over his shoulder as he taught him to trade a short-term breakout strategy targeting stocks that were making new highs. Soon Dekker began trading the principal’s proprietary capital. In six months he was making more money than his mentor.

“The first month I started trading I would make $500 to $700 on a trade where [the principal was making] $10,000 to $30,000 on the same trade. I knew I was on the right track,” Dekker says. In August 1999, after multiplying his original capital 40-fold in 18 months at NDX, he opened his own office and focused on short-term long/short equity trend following and breakout trading.

In mid 2001, Dekker met another mentor at a hedge fund conference who persuaded him to move to long-term systematic trading. Dekker was in the midst of a drawdown and open to something different. “The volatility of the markets was starting to decrease and the opportunities were diminishing,” he says. “He [suggested] I take everything that I do...and plug it into a computer and test it. Find out what works and what doesn’t,” he says. “I was also looking to become more scientific with respect to my risk control.” Dekker systematized everything.

Testing showed profits increased with lower drawdowns on half the number of trades. “By lengthening the time horizon of my trades and only taking breakouts in the direction of the long term trend, the results seemed to be much more consistent and the methodology seemed to work across all

markets,” he says. In May 2004 he began trading his new system with proprietary capital and in September 2004 he began trading clients’ money.

In addition to a longer time frame he developed his global money management rules. “Instead of using a value at risk model or working up to some maximum risk component in every sector, I keep taking every signal,” he says. “When I enter a trade, I have a money management stop and I have a trailing exit. As a sector evolves and moves forward and I keep getting more and more signals in the sector, I keep adding exposure. When my exposure hits a certain limit, in either a percentage of the total asset mix or as a percentage of total equity at risk, I restrict my exit methodology. I tighten it up,” he says.

An example would be if he used a 100-day moving average as a normal exit, he would tighten it to a 10-day when he becomes overweighted in a certain sector.

“What I’m doing is allowing myself to take increased exposure without the incremental risk. Other [managers] restrict risk or stop taking positions, but I keep taking positions and adjust the risk,” Dekker says. “I end up with a larger basket of instruments at an initial heavier weighting in the same sector. I’m trying to capture profits in a parabolic market and allow myself to get overweighted in a sector and then whichever markets turn down first, I get out of first,” he says.

Dekker’s program trades currencies, metals, energies, grains, softs, meats and stock indices. He likes futures because they are very liquid and they trend better than other markets. In November Dekker Capital will begin trading a new

program tailored to add leverage on drawdowns based on the theory that the best time to invest with a trend follower is in a drawdown.

“A long term trend following strategy is one of the hardest strategies to trade, but if you can stick to it, it continues to work year after year. That’s what makes a successful trader — to have a successful system and be able to follow it,” he says.